The Case for Augmenting Apple’s Product Line

Companies that splinter and proliferate their products lines have had severe problems in the past. However, Apple did have to meet the threat of the 7-inch tablet and did so very nicely. The company may have to do it again.

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Large companies get large by dominating a particular product area. IBM did it with mainframes in the 1960s, Digital Equipment Corp (DEC) with minicomputers in the 1970s, and then a host of PC makers, teamed with Microsoft and Windows in the 1980s and 90s.

Companies that try to compete in a dominated market can only do so by nibbling around the edges -- niche markets. DEC did that in the 1970s and 1980s by appealing to customers who had significant computing needs, but didn't have a mainframe budget. The DEC VAX, a follow-on to the legendary PDP minicomputers, was the mainstay of medium sized research organizations, especially in the U.S. government.

DEC also engaged in trench warfare against IBM by offering IBM compatible peripherals. In "Failures of Large Computer Companies," from 2006, the University of Washington authors explain:

Also reinforced by the culture of the company was DEC’s propensity to branch into new areas of technology and to build new and proprietary hardware and software to meet niche market demands. For example, in addition to their computer systems, DEC offered networking products, file and print sharing products, a database product, and software for transaction processing, etc. Generally, these products were not financially successful for DEC and were a source of confusion for many customers who saw an unaligned set of disparate offerings in the company’s catalog."

In a similar way, but for different reasons, Apple plunged into model-mania with the Performa series in the mid 1990s. Apple, in my recollection, increased the number of models in a desperate, misguided attempt to increase sales. Later, Steve Jobs figured out that what Apple customers wanted was not more choice, but a better single choice. The legendary Bondi blue iMac in 1998 was a huge success.

The first iMac in 1998 was a huge hit.

These are just two examples of case histories where we think we learned that too many models and too many side products is a hard to manage affair and simply confuses customers. And ever since Steve Jobs announced the famous 2 x 2 box of products that likely saved Apple, it's been the common wisdom that a simple product line is superior to a complex one.

Failure Modes

And yet the reason for DEC's failure isn't solely based on its proliferation of products. From the UW report:

The cultural ideals promoted at DEC also dictated that the technologically superior design will prevail in the open market. DEC was proven wrong at least twice, with this assumption. Once, this belief was crushed by the proliferation of the IBM-compatible PC devices. A second time, it was shattered by open-standard software which handily defeated DEC’s proprietary interface specifications – especially for technologies like networking."

And then, in a coup de grace, IBM came out with its own mini computer, the AS/400. That and the IBM PC on the low end sealed DEC's fate.

In the case of Apple, its demise was blamed on a decade-long inability to develop a first-rate OS to replace the original Mac OS combined with an inattention to profitability. Again, from the UW report.

Apple had other issues beyond the OS; the company seemed to operate in a research mode, not driven by profits, as had Xerox Parc in the 70s. In comparison, Microsoft took a much more boring approach, regularly shipping upgrades to its somewhat dull products."

And so, while product line proliferation can be a symptom of bad (or desperate) management, it's only part of a generally bad corporate mess, not the sole reason for corporate failure.

Mature vs. Nascent Industries

In both cases above, the companies cited were working in a mature industry. There was a recognized leader (IBM, then Microsoft), and other companies were trying to find ways to compete. One way to do that is to fill in the holes of the leader's product line.

We see that today in the emerging tablet product. Apple got off to an early lead with the tablet concept, and equalling Apple's efforts seemed impossible until, at Christmas 2011, Amazon figured out that a consumer 7-inch tablet, the Kindle Fire, at an attractive price, subsidized by product sales, was a valid way to attack Apple's single iPad product.

Recognizing that the future of the tablet was not yet fully defined and recognizing this weakness in its product line, Apple introduced its own 7-inch iPad mini, a product that's doing very well because, as Amazon proved, there was indeed an overlooked market for a product of this size (and weight). It can happen again.

Today, the situation is different with tablets and smartphones compared to PCs of the past. PCs were complex devices that thrived in a business environment of MS Office, networking, and productivity products. However elegant the Mac was, it had a hard time competing, especially when it had an ancient, crippled, failing OS that didn't meet the needs of modern business.

On the other hand, tablets and smartphones are complex internally, but they try to present great simplicity to the user. They tend to look alike, in spite of patent battles, and customers find that, for the range of things they want to do, the best products from Amazon, Google, Samsung and Apple are very similar in form and function.

Going back to the UW analysis of Apple's near death experience:

One way of looking at Apple's almost-failure is that it was simply the result of the free market doing its job: bringing consumers maximum utility for the least possible price. If Mac failed in the market, maybe this wasn't such a bad thing; Apple did, after all, do a number of stupid things, and, for a period of time, charged a higher price for products that seemed to provide significantly less value than their substitutes."

However, a major difference in 2013 is that Apple has maintained the iPad's perceived value though advanced manufacturing. Also, it has cleverly developed its partnerships and sales so as to capture significant profits in the face of a wide range of lower cost competitors who are not making all that much profit themselves.

Another important factor is that in the heyday of business PCs, the goal was to spend the least amount of money for industry standard, Windows-based computers. In contrast, Apple has smartly gone after the consumer market when personal spending authority can often lead to the concept of acquiring (and flaunting) the best.

The Way Forward

In the face of severe competition in the tablet and smartphone markets, Apple has sought to establish itself firmly as the premium product, avoiding a race to the bottom and collecting handsome profits. So far, so good.

But unlike the PC vs. Mac wars where the design of the Mac and the elegance of OS X outflanked commodity PCs and Windows XP, riddled with security issues, the modern design of tablets doesn't have those key differentiators. It's increasingly difficult for Apple to make the case that the iPad is worth the extra price. Especially when one standard tactic, notably used by Samsung, is to tout certain technology features that make their products appear more advanced, even if the features remain half-baked.

Perception is everything.

A way into the fortress?

The net result is that competitors are storming Apple's fortress with 1) Advanced technology, 2) Consumer choice 3) Lower prices and 4) An assortment of smartphone and tablet display sizes. One initiative now is the 20-27 inch table tablet. See, for example, "What’s the Difference Between an iPad and a Coffee Table?" I don't believe that particular strategy will pay off in the short term, but it does reflect the fact that Apple's competitors are striking out in many directions, hoping to strike gold. (They have not.)

At some point, however, as the tablet and smartphone technology evolves, the competitors are going to find a critical resonance with customers and Apple will be forced to react, just as it did to the Kindle Fire in 2012 with the iPad mini. The question is, with all that is being thrown at Apple by all these competitors, -- in a nascent market -- who will be first to find the new resonances? And what will be the impact?

A simple product line also means a role reversal; Apple will be playing catchup, looking to plug holes in its product line, when appropriate, that are exploited by the competition, before market momentum gets out of hand. That, inevitably, will lead to an expansion of Apple's product lines and suggests that the rumored low cost, good quality iPhone mini, designed for emerging and unsubsidized markets can make sense.

Also, in time, as iOS matures, content creation will take on a stronger role in the Post-PC era. That calls, eventually, for larger displays, the ones we see now highlighting Windows 8. Not now. But soon.

The question then, really, is can Apple, confident that it always makes the best product -- and devoted to a simple product line -- identify and exploit emerging, markets that resonate with customers quickly enough? After all, big companies protect their flanks, and it took Apple almost a year to respond in the 7-inch tablet market.

Finally, there is serendipity in exploring new product lines. One unintended consequence of the iPad mini is the discovery that low weight, not the screen size, turned out to be the killer feature. Who knew?

I don't see Apple introducing a myriad of products as Samsung has done, throwing out whatever seems to stick. But I do think Apple will need to make careful yet adventurous forays into discovering what it is their customers need, just as they're realizing they need it. That will lead to a natural, choice driven, modest expansion of the Apple product line.

In comparison, Microsoft took a much more boring approach, regularly shipping upgrades to its somewhat dull products.” {/quote]
Reminds me of the complaints about the iPhone. Not that I think of them as dull, but there seems to be a lot out there that panic if Apple keeps the same form factor for more than two models.